GST regime affects small diamond units in Gujarat

Damjibhai Mavani, secretary of Surat Diamond Association, said, “It will take at least a year to put things in order. This is the problem of the small units and not the larger ones.Sutanuka Ghosal | ET Bureau | July 31, 2017, 16:51 IST

Small diamond units in Gujarat say doing business in the goods and services tax (GST) regime has become difficult due to increased compliance requirements and uncertainty over when they will get input credit refund.

The nearly 50,000 small and medium units in Surat and Saurashtra employ close to 200,000 workers, and according to the chairman of Gem & Jewellery Export Promotion Council (GJEPC), some of these units may have to down shutters in the coming months as any delay in input credit refund will put pressure on capital for day-to-day operations.

Cut and polished diamonds were exempted from all taxes till June 30.

“GST has increased paperwork and compliance requirements which is bothering a lot of units. The small units are staring at a huge loss in the first six months at least,” said Praveen Shankar Pandya, chairman, Gem & Jewellery Export Promotion Council. “There is uncertainty over their fate.”

Damjibhai Mavani, secretary of Surat Diamond Association, said, “It will take at least a year to put things in order. This is the problem of the small units and not the larger ones. GST will bring in more transparency and make the industry tax compliant.”

A protest against GST by diamond units in Surat last month had led to a Rs 700-crore loss in business. Diamond traders are opposing the 3% GST on polished diamonds, 5% service tax and 0.25% GST on imported rough diamonds.

Diamond traders said taxes under GST will shrink their export turnover by about 20%. “Considering that 90-95% of the diamonds processed at Surat and Saurashtra are exported, taxes on local transactions should not be levied,” said a senior diamond trader, who did not wished to be named.

Pandya said the units can claim input tax credit. “But that is time consuming as it is not known when they will get the refund. Till such time there will be pressure on working capital,” he said.

“The 3% GST on polished diamonds is refundable once the product is exported. It is not clear why the taxes are being taken in the first place if it has to be repaid,” said a diamond trader from Surat.

Earlier, talking about the India International Jewellery Show (IIJS) which was held in Mumbai last week , Pandya said nearly 1,200 exhibitors are participating in the exhibition this year. The event has seen participation from the UK, US, China, Saudi Arabia, Sri Lanka, Uzbekistan, Jordan, Iran, Bangladesh and Malaysia. “There is a lot of interest among both buyers and sellers. A clearer picture on business transactions will emerge once the show comes to an end,” the GJEPC chairman said.